A recent Bloomberg Markets Pulse survey revealed that two-thirds of 392 respondents anticipate the US 10-year Treasury yield to exceed 5% before the end of the year. This would mark a significant milestone, as the 10-year yield has rarely remained above this level since 2007. Approximately 38% of those surveyed believe this will occur in the fourth quarter, while 28% expect it to happen even sooner, within the next month or two. This sentiment reflects investor apprehension about rising long-term borrowing costs, which could impact various sectors from mortgages to corporate and consumer loans.
The current ascent in US bond yields is attributed to multiple factors, including persistent inflation, high energy costs, uncertainties surrounding the Federal Reserve's monetary strategy, and the US national debt approaching $40 trillion. On Wednesday morning in New York, the 10-year yield stood at 4.65%, having receded slightly from an earlier high of 4.75% after the Treasury Department announced an increase in buybacks of long-dated government debt. The 30-year yield was recently trading at 5.20%, though nearly 60% of poll contributors doubted it would reach 6% this year.
The rising US Treasury yields are particularly concerning for Asian economies. Past instances of surging US yields in 1997, 2007, and 2013 have historically led to turbulence in export-dependent, dollar-reliant Asian markets. This cycle is unlikely to be different, with currencies like Indonesia's rupiah and India's rupee already down 7.2% and 6.2% year-to-date, respectively, as capital flows into US assets. Washington's increasing annual interest payments on its federal debt, now over $1 trillion, coupled with its need for major foreign creditors, predominantly from Asia, to continue purchasing debt, adds to the complexity. Japan holds nearly $1.2 trillion in Treasuries, and China holds $659 billion.
The potential for US 10-year yields to breach 5% could further tighten financial conditions globally, impacting borrowing costs for companies and other loans. This could curb economic growth, which has supported stock markets. Experts like Guy Miller, chief market strategist at Zurich Insurance Group, emphasize the critical nature of the 5% mark, suggesting that a sustained break above it could undermine market confidence. The US Treasury's recent decision to increase buyback operations for securities ranging from 10-year to 30-year sectors signals its concern over escalating long-end yields.
